There’s no question that money is going digital, but the form that “digital cash” will take for the majority of global users is still largely up in the air. There are rapid advancements being made in central bank digital currency (CBDC) research and development, as well as fiat-pegged stablecoin and untethered cryptocurrency adoption. All signs point to a future where there will be myriad competing forms of money that people can use to transact and save in.
Some of the world’s foremost digital currency experts appeared today at Consensus to give their take on the future of money. They offered a glimpse at the current state of payments evolution, as well as the many blockers in place to bring about a “Hayekian moment.”
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According to the latest figures, nearly 80% of central banks are exploring CBDC use cases. Although major economies – like China, Japan, the European Union and the U.S. – are in various stages of research and development, it could be said most of the energy is concentrated in emerging markets, frequently cut off from the global financial system.
Perhaps in a sign of the times, this morning Bank of Mauritius Governor Harvesh Seegolam disclosed that the central bank is working to finalize details of a CBDCs pilot to launch by the end of the year. It would join Cambodia, Saudi Arabia and the United Arab Emirates, among others, in active research. Last year, the Bahamas made history as the first nation with a functioning digital fiat system (pegged to the U.S. dollar).
Digital fiat could improve financial inclusion and “address gaps that the traditional monetary system is not able to fulfill,” Governor Seegolam said today.
By comparison, the U.S. is taking a cautious approach to CBDC development. While there are notable proponents for a digital dollar, such as former commodities regulators Chris Giancarlo and Daniel Gorfine, there are as many detractors.
Federal Reserve Governor Lael Brainard, for one, mentioned a number of policy considerations that still need to be wrinkled out. These include privacy concerns, the effect state money would have on banks, the impact on underserved communities and cross-border concerns, she said during a Monday Consensus keynote.
Brainard added that private alternatives, like stablecoins that “reference” fiats, come with their own destabilizing risks.
Brian Brooks, the CEO of Binance.US and former acting Comptroller of the Currency, offered his opinion: a CBDC will “never” be launched in the U.S. “That’s not what we do in this country,” he said, adding that monetary innovation is and must be led by privately issued stablecoins.
Asked whether CBDCs would compete with or complement crypto-asset networks like XRP, Ripple CEO Brad Garlinghouse said in a separate panel that it depends on what use cases are being targeted.
Consensus on where we go from here is anything but assured.
Regulation – boom or bust
In public comments today, Christian Catalini, chief economist at the Diem Association, the body behind the digital currency project, presented a denuded version of the dollar-backed diem stablecoin. Once promised to be an easy-to-use, mobile-first digital payments network that could stand apart from any local government’s monetary system, Diem (formerly Libra) now aims to stay firmly within the system.
The to-be-released digital asset, issued in conjunction with Silvergate Bank, will act as a placeholder for an official, state-backed digital dollar, Catalini said. “The design of our network is really meant to mitigate the risk of currency substitution,” he said.
It’s common knowledge that the original vision for a multi-asset-pegged global currency had been whittled down by regulatory concerns – a vision Catalini now admits was “naive.” He said the group has spent innumerable hours working with regulators to bolster consumer protections and mitigate potential fraud.
Morgan Beller, a former Libra employee and current venture capitalist, gave insight into that process today. Still rattled from the “PTSD” and “regulatory scars” of working on the Facebook-led initiative, Beller now takes a more pragmatic approach to disruption.
Fiat, she said, has network effects that act as a “moat” to prevent disruption. There may not be incentives to move to new rails, and for regulators any amount of change introduces risk. But the system can still be changed.
From the top down, fiat brokers might see the benefits of novel technologies that CBDCs (“watered-down stablecoins,” to steal her phrase) or stablecoins can bring. That explains the numerous countries and corporations, like PayPal, that are building new, more decentralized plumbing.
Then, Beller said, there are these bottom-up grown swells where people adopt tools because it solves a real issue. “There has been a lot of crypto for crypto’s sake,” Beller said. But in emerging markets, there are people who need services that traditional fiat cannot supply.
What’s more, once these truly decentralized systems – the “immaculate conception coins” like bitcoin and ethereum – take hold, they cannot be squashed. There was a confluence of forces that led to bitcoin and ethereum’s success – perhaps most notably that at launch, regulators were simply uninterested.
Can this be replicated? Could truly cryptographically secure sovereign assets take hold everywhere? Beller seemed skeptical that the majority of people would ever learn how blockchain or key management ever works. What’s needed, again, are useful products.
Cuy Sheffield, Visa’s blockchain lead, seemed to agree, but thought widespread adoption would happen selectively at first. He noted in speaking to his crypto clients that a number were performing the majority of their business deals in stablecoins like USDC.
“The first main use case for USDC is a settlement layer,” Sheffield said, meaning moving funds from wallets to Visa or for cross-border B2B payments. He said this is a trend that would continue, at the commercial level, before the company expects a mass amount of consumers to begin paying merchants directly in stablecoins.
But the world is a big place, populated with many different types of people. There can be a level of decentralization in products that different companies offer. Some people will always prefer custodial solutions, whereas others want to know their cryptographic keys.
For Sheffield, the future of money lies at the “intersection between fintech, crypto and banking.”
PayPal will enable withdrawal
PayPal plans to let users withdraw cryptocurrency to third-party wallets, its blockchain lead said, a service that is currently unavailable. The payments giant has let people buy, sell and hold a few cryptocurrencies since October 2020. The company ships new developments every two months on average, he said, though it’s unclear when the withdrawal functionality is coming.
Ripple still plans to go public
Ripple is waiting for an ongoing SEC lawsuit to end before it looks to go public, CEO Brad Garlinghouse disclosed today. “The likelihood that Ripple is a public company is very high at some point,” he said. The SEC launched an enforcement action in December 2020 that accused Ripple Labs of conducting ongoing and unregistered securities sales. Though still in discovery, the suit could be a landmark moment in U.S. securities law.
Question worth asking
In a meeting of the minds this morning, Bitcoin Core leads discussed the meaning of network stewardship as well as the blockchain basics, such as, “What is a user?” Bitcoin devs Eric Voskuil, Adam Back and Rusty Russell all agreed that from a protocol consensus perspective, only those running and using a Bitcoin node to verify their economic activity are true users – though the conversation gets complicated when asking what a miner is, too. So who really “runs” Bitcoin: the miners, the nodes, the users or the core devs?
Tom Brady will speak at the closing night of Consensus 2021, following a totally unplanned and completely spontaneous invitation from crypto mogul Sam Bankman-Fried. Brady is a late – though apparently committed – convert to crypto, given his adoption of the bitcoin laser eyes. He is also backing a new NFT platform.